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Oct
27

Fixing Global Finance: A developing country perspective

Post By gaia1 in TFD system


Fixing Global Finance is a scholarly, yet very readable book or booklet which has been written by Kavaljit Singh, the director of the Public Interest Research Centre, Delhi. This policy research institute works on finance, investment and developmental issues. His previous books include The Globalization of Finance: A Citizen's Guide (Zed Books, 1998), and Taming Global Financial Flows (Zed Books, 2000). He is also the founder of Madhyam Books, an independent publisher of books on political economy. His latest book is an example of how civil society can be informed and stimulated into action in a complex international system besides being excellent reading for policy makers and market participants. Despite some recent initiatives, the global civil society’s engagement with the governance of private capital flows is rather weak and diffused.

 

One of the shortcomings of the book is that no distinction is made between the monetary and financial systems. When dealing with financial crises he places between brackets “banks and currencies” as if banking crises and currency crises are can be placed on the same level as having the same properties.

 

Having congratulated him on his book and the strong support he received from the Governor of the Bank of India during the 2003-8 period, I invited him to comment on the TFD given that in fixing global finance the global monetary system is to be part of any financial solution because of its basic and glue-like nature.

 

As remarked in yesterday’s blog post it is remarkable how few people consider distinguish between monetary and financial reform and transformation. Kaviljit refers a couple of times to the dangers of developing countries holding large foreign exchange or forex reserves which they had built up as buffer against sudden capital outflows. He mentions how large forex reserves put pressure on a country’s exchange rate so that the currency appreciates, negatively affecting the competitiveness of exports. Excessive reserves could induce asset price bubbles and higher inflation by way of an excessive money supply. There are fiscal costs as well, as the authorities may lose control of monetary policy. If exchange rates were fixed as proposed in the TFD system and monitored by its global monetary authority, there would be no need to build up large forex reserves. As a matter of fact, the costly global reserve system would become a system of the past. How long will it take for government, business and civil society to push for this transformation? Why so much more suffering of billions of our fellow citizens, the disappearance and degradation of ecosystems and the increasing devastation of the climate crisis? Under what conditions will government, business and civil society take the needed transformational actions?

 

Oct
26

FIXING FINANCIAL FRAGILITIES: Beyond the IMF’s Big Picture

Post By gaia1 in IMF/WorldBank

 

At the IMF’s blog, called iMF Direct, John Lipsky, the First Deputy Managing Director of the IMF who helped to manage the Fund’s exchange rate surveillance procedure and to analyze developments in international capital markets in the 1970s and 1980s presented a well-written report on October 22 on the Shanghai conference entitled Macro-Prudential Policies: Asian Perspectives” that took place on October 18. His blog entitled “Macro-Prudential Policies: Putting the “Big Picture” into Financial Sector Regulation” responded to this IMF sponsored conference that was hosted by the People’s Bank of China.

 

Under the “Aims of the conference” the blog stated that “there was wide agreement that the first step in designing macro-prudential policies ought to be a convergence of views regarding the objectives of such policies.” The next paragraph concluded: “Of course, the most basic objective is straightforward—to prevent a crisis like the one just experienced."

 

I responded to the blog by submitting the following reply: Can the convergence of views only be expressed in the lowest common denominator of preventing another 2008 crisis? I for one believe that the monetary system can be used to combat climate change and advance low carbon, carbon-resilient development by basing it upon a carbon standard. Such standard would make currencies convertible and would remove the costly global reserve system. Curious, how that can be done? Go to http://conference.unitar.org/yale/environment-sustainable-development

 

Though his boss gave an excellent speech that concluded the one-day conference, the Big Picture thinking of the IMF is not big. It deals with technically sophisticated financial and economic policies without digging deeper to the real causes of the financial and economic malaise of the present global systems.

 

Curiously enough for a monetary institution like the IMF, the basic operations of the international monetary system itself are not subjected to a Big Picture view. If that were done, some of the many working papers that are being produced every month should have dealt with investigations about the feasibility of monetary standards and engage in exploring various ways of devising them, so that policy makers on the ministerial or leadership levels could discuss them. However, this is not done, mostly because the IMF is not asked by its member states to do this. I have written an open letter to a dozen Obama Administration’s officials suggesting that they propose at the G20 Seoul Summit the establishment of a monetary transformation commission to deal with the monetary conflicts on exchange rates, currency manipulation and speculation and global financial and trade imbalances. Such suggestion would indicate monetary leadership by an economically global declining power and set an example to an economically globally rising power like China which seems unwilling to accept its global economic responsibility.

 

Oct
22

Loose money, currency conflicts, capital controls and monetary governance

Post By gaia1 in Exchange rates

 

With interest rates extremely low in the US and other developed countries investors scour the globe for higher interests. They can be found in emerging and developing countries’ markets and thus large, mostly short-term capital flows enter their financial systems. These flows make these economies grow at an uncontrolled pace, unless their governments put capital controls to work in the many ways that can be done. Geithner and the IMF have indicated that they do not oppose capital controls in emerging nations as they try to defend themselves from excessive liquidity caused by the dollar and other currencies as long as they don’t touch the exchange rate and result in currency conflicts.

 

In order to resolve these currency conflicts the Gyeongju and Seoul meetings are considered to be part of a broader discussion on global policy coordination, which is called the “Framework for strong, sustainable, balanced growth” or for short the “Framework.” This Framework is supposedly to become the global monetary governance framework that will guide the monetary, financial, economic and commercial relations between nations.

 

One crucial adjective that is missing in that Framework is equitable. The present international monetary system is not equitable and therefore not sustainable, let alone stable. This fact is realized by Secretary Geithner when he recently told the Wall Street Journal: “Right now, there is no established sense of what’s fair.”

 

Because fairness and justice is not discussed, let alone determined the present international monetary system hobbles along incapacitating the emergence of strong financial, economic and commercial systems. It also leads to the absence of a global monetary institution with enforcing power which, in the words of an October 10 article, is called “Nobody at the helm”.

 

Equitable, sustainable, and, therefore, stable monetary governance means that the new global monetary governance system is based upon social and ecological/climate justice as proposed in the IIMT’s Tierra Fee & Dividend system. Its framework of equity and sustainability can stand the test of time because it addresses itself to this century’s two most important challenges: combating climate change and advancing low carbon and climate-resilient development.

 

 

 

Oct
21

Currency conundrum, economic imbalances and monetary transformation

Post By gaia1 in Exchange rates

 


If nations continue to intervene in their exchange rates in order to keep them low to bolster their exports and engage in trade restrictions to counter the other nations’ currency policies, the winners will be the hundreds of currency gamblers or arbitrageurs and the losers will be the millions of people whose national economies will suffer. Not cooperatively dealing with both the currency conundrum and the global financial imbalances will lead to economic disaster and may bring back the Great Depression of the 1930s.

 

The IMF’s 183 financial ministers and central bankers meeting in early October did not resolve anything, though some consensus seemed to grow that the IMF should have stronger powers to deal with both surplus and deficit countries. The weekend of October 22-3 brought the financial ministers and central bankers of the G20 together in SeoulBrazil did not want to send its representatives—in preparation for their “leaders” on November 11-2. The prospects are dim for both meetings. In the meantime, investors take their funds to high-yielding bonds in the emerging and developing markets, ready to withdraw them when the more lucrative investments can be made elsewhere. Currency traders play with the $40 trillion market, almost all of which is strictly for speculation. At the same time national governments are putting severe austerity budgets in place and raise taxes in these insecure economic times with great hardships for people and unheeded environmental damage.

 

Reuters http://www.reuters.com/article/idUSTRE69K0JU20101021?pageNumber=3  recently proposed four scenarios to deal with this wholly unacceptable currency and economic situation and assessed them in terms of their probability of acceptance. They were all reformist monetary proposals and have some merit. However, they do not go far enough. What is needed is to transform the international monetary system which  is the basic international system that binds the monetary, financial, economic and commercial systems together.  Given their insoluble integration, changing the basic system changes the other systems that are built upon it.

 

President Sarkozy wants to review the international monetary system during his presidency of the G20 during 2011-2. He thinks that the G20 is the only venue for reviewing it. I contacted the France’s UN Ambassador some two weeks ago to ask him how best to bring to his notice the TFD proposal in that review. A few days I also wrote a letter to a dozen U.S. government officials who are going to be part of the Seoul summit and suggested that the U.S. government take the bold step “that the G20 nations sponsor a UN General Assembly resolution that would establish the UN Commission of Experts on Monetary Transformation and Low Carbon, Climate-resilient Development. Thus, the resolution of the currency disputes and the development of carbon-based monetary standard would be dealt with at the proper level of international congress for further investigation.”

 

 

 

 

Oct
20

US transformative position on currencies at the G20 Seoul Summit

Post By gaia1 in American Monetary Matters

The following letter was sent today to about a  dozen US Government officials with additional information of the OPED piece on US-China currency and of the Yale/UNITAR article.

 

 

 

 

CURRENCY STABILITY AT THE G20 SEOUL SUMMIT;

A Transformational Position by the US Delegation

Proposed

by

Frans C. Verhagen, M.Div., M.I.A., Ph.D., sustainability sociologist

Founding president of  the International Institute for Monetary Transformation

Www.timun.net ; gaia1@rcn.com

 

  

 

The recent IMF annual meeting of 183 financial ministers was unable to deal with the US-China currency dispute and similar currency disputes, such as currency manipulation by other states than China. It was decided to move the resolution of these currency disputes to a higher political level, i.e. to the government leaders at the G20 Summit in Seoul.

 

            The main reason for the inability to resolve the currency disputes—the elephant in the international currency dispute room—is the lack of a monetary standard in an international monetary system that has been termed a non-system and an international crime by Nobel prize winner Robert Mundell. As long as nations cling to national or regional reserve currencies, the international monetary system will continue to be inequitable and unsustainable, and, therefore, unstable.

 

By basing this international system which as glue binds together the monetary, financial, economic and commercial systems on a  carbon-based monetary standard, nations would be able to combat climate change and advance low carbon and climate-resilient development, two of the 21st century major challenges. So, a transformed international monetary system would be used to pursue those challenges.

 

Economist Judy Shelton has argued during her Congressional testimony on May 15, 1999 that a monetary standard is needed because of  the continued expansion of free trade, the increased integration of financial markets and the advent of electronic commerce.  She also raised the important question “whether this process of monetary evolution will be intelligently directed or whether it will simply be driven by events.” The present US-China and other currency disputes seem to indicate that, unfortunately, the latter route is being followed. She concluded her testimony by stating that “it is imperative that the United States begin to develop and put forward its own global monetary vision for the future.”

 

The International Institute of Monetary Transformation has developed the basic outline of a carbon-based international monetary system. It was invited by UNITAR to write paper on this transformative system for its 2nd Yale/UNITAR conference on Global Environmental Governance (September 17-9, 2010). The paper is, together with a circular that explores the question whether this system can function as a post-Kyoto alternative, is available at http://conference.unitar.org/yale/environment-sustainable-development.

 

Given  that the Seoul Summit will be unable to come up with a lasting and transformative resolution of the currency disputes, let alone of the wholly inadequate international monetary system, it is suggested that the US proposes at the Summit and champion within the G20 communiqué that the G20 nations sponsor a UN General Assembly resolution that would establish the UN Commission of Experts on Monetary Transformation and Low Carbon, Climate-resilient Development. Thus, the resolution of the currency disputes and the development of carbon-based monetary standard would be dealt with at the proper level of international congress for further investigation.

 

CC: Hillary Clinton, Secretary of State

 

Timothy Geithner, Secretary of Treasury

Larry Summers, Director of the National Economic Council

Ben Bernanke, Chairman of the U.S. Federal Reserve

Austan Goolsbee, Chair of the Council of Economic Advisors

Doug Shulman, Commissioner of the International Revenue Service

Raj Shah, Administrator of the United States Agency for International Development (USAID)

Lael Brainard, Under Secretary of Treasury for International Affairs

Michael Froman, Deputy National Security Adviser for International Economic Affairs

Gayle Smith, Senior Director at the National Security Council

Jeremy Weinstein, Director for Democracy, National Security Council 

Maria Otero, Under Secretary of State for Democracy and Global Affairs

Elizabeth Warren, Special Advisor to the Secretary of the Treasury on Consumer Financial Protection

Gary Gensler, Commissioner of the Commodity Futures Trading Commission

Janet Yellen, Vice Chair of the Board of Governors of the Federal Reserve Board

Dan Tarullo, Governor of the Federal Reserve Board

 

Oct
07

Revisiting the TFD as a global governance system

Post By gaia1 in TFD system

 

REVISITING THE TFD AS A GLOBAL GOVERNANCE SYSTEM

Thursday, October 07, 2010

 What difference one day makes! Yesterday the mail delivered the Right Relationship. Building a Whole Earth Economy by Canadian Quakers Peter Brown and Geoffrey Garver. I had ordered this book because of its view of governance. I was pleasantly surprised to find a very bold, well-written, value-based blueprint for a future economy proposing four new institutions and four ways to bring them into existence. Their view of Right Relationship very much resembles my contextual sustainability framework, including their view on subsidiarity and my view on bioregional economics. It is this book that made me decide decisively that the TFD is not a comprehensive global governance system, but a partial one. The TFD presents a global governance system that is limited to the global governance of climate and development based upon a carbon-based international monetary system. (Their view of the successor to Keynes’ Bancor, i.e. ecor has similarities to the Tierra.) As a post-Kyoto alternative, the TFD can be considered to be a major building block towards their Whole Earth Economy

 

Oct
05

The TFD as a global governance system

Post By gaia1 in TFD system

 


The question is whether the TFD is “only” a post-Kyoto alternative or is able to function as a global governance system.

 

The Rio 2012 Earth Summit has as its fourth theme the issue of global governance. It is conceived in terms of environmental and economic governance structures. So, humanity would develop institutions, processes and procedures that would guide the international community in environmental and economic matters.

 

The TFD is predicated upon a monetary global governance system that is proposed to be part of the above two global governance structures. Given that the TFD integrates both the realities of climate change and the economics of low carbon and climate-resilient development it conceptually contains the other two global governance structures.

 

Can the TFD be considered to be a global governance system that would be able to function as the world’s governing structure? What other characteristics/qualifications are needed to function in that way?

 

A first qualification would be an explicit value base that integrates social and ecological values, so that human societies can find a common value base out of which to plan. The TFD has its value-based planning framework with its central value of climate justice that is closely related to the existing Earth Charter.

 

A second qualification for a workable global governance system is an economic philosophy that emphasizes the priority of ecological well-being: the economy is part of ecology and not vice versa as Thomas Berry and others have eloquently argued. The TFD contains the economic philosophy of bioregionalism.

 

A third qualification for a workable global governance system is a global political entity that is able to oversee the running of the global monetary, financial, economic and commercial systems. The TFD has its UN World Central Bank that administers the TFD, monitors and regulates financial flows and creates liquidity as the need arises.

 

A fourth qualification for a workable global governance system is the integration of the monetary, financial, economic and commercial systems based upon the system that binds them all together. The TFD contains the carbon-based monetary standard which enables nations to fix their currencies on the common, negotiated value of the standard expressed in the unit of account of the Tierra.

 

Oct
04

Approaching the mainstrean corporate media

Post By gaia1 in TFD system

 

Attended a very interesting session at All Souls Unitarian Universalist Church on 80th Street and Lexington dealing with the mainstream corporate media organized by Project Censored. It is not only critical reading existing reporting, but particularly identifying the framing, the balancing and avoiding of issues. In their 2011 edition they describe the need for replacing the US dollar as reserve currency by referring to half a dozen writers who are unable to reach the general public via these corporate media outlets.

 

Though  I have submitted the US-China Currency Dispute—consecutively, following their etiquette—to the New York Times, Washington Post and the LA Times, to day I sent the OPED piece to two of the Times regular columnists—economist Paul Krugman and journalist Thomas Friendman. The title of the response refers to their columns.

 

Response to column of October 1 Taking on China by Paul Krugman, using the member center form.

 

Generally I agree with your columns, but in the case of the US-China currency dispute I think you overlook one important dimension. It is the lack of a proper functioning international monetary system--called a non-system, a criminal system by Robert Mundell--that causes this and other currency conflicts. The attached OPED piece argues for a carbon-based international monetary system. (If you are interested I can send you a background article that I was invited to write for the 2nd Yale/UNITAR conference on global governance (17-9 September).

 

 

Response to column “Third Party” of October 4 by Thomas Friedman.

 

Part of the platform of that Third Party would be bold international monetary policy that would replace the dollar as reserve currency and base the new international monetary system on a carbon standard. The appended OPED piece about the US-China Currency dispute sent--consecutively-- to the NY Times, Washington Post and LA Times makes the point. I believe that the Tierra Fee and Dividend (TFD) system can be considered one of the most promising global governance systems that can be adopted at the Rio Earth Summit in 2012. The US could regain its geopolitical position by pursuing the TFD, both at home and abroad. It would include your position about US leadership through green energy and environmentalism.

 

THE US-CHINA CURRENCY DISPUTE:

The case for a carbon-based monetary standard

 

An OPED piece

Submitted to the NY Times

By Frans C. Verhagen

September 24, 2010

 

The longest period of global economic progress in the 20th century was the period of 1945 to 1971. The main reason of these two decades of prosperity was that the basic global system, i.e. the international monetary system had a monetary standard. That gold/dollar exchange standard made currencies fixed (within narrow bands) which made trade predictable and flourishing.

 

This happy state of affairs changed when the gold/exchange window was closed by the Nixon Administration on August 15, 1971. This led to the present system of fluctuating exchange rates which has led to rampant currency speculation where 95% of the currency trades belong to casino gambling and 5% respond to the needs of real economies. It also underlies the present currency disputes between the US-China and other such as the EU-China one and Japan’s effort to devalue its yen to stimulate its economy and boost its exports. It is also worth mentioning that trillions of dollars are lost in unnecessary transaction costs for businesses that have to hedge their projects against these currency fluctuations. Furthermore, developing countries have to spend $100 billion annually to buy hard currencies to protect their currencies and be able to purchase needed (and sometimes unnecessary) imports. In the meantime the global economy is still reeling from a foreseeable financial debacle that has led to austerity budgets, severe unemployment and increased hunger and disease.  In all, the lack of a functioning international monetary system—it is called a criminal non-system by Nobel economics prize winner Robert Mundell—is  a major cause of an international economic and financial system that enriches the few, impoverishes the many and imperils people, species and planet.

 

Economist Judy Shelton has argued during her Congressional testimony on May 15, 1999 that a monetary standard is needed because of  the continued expansion of free trade, the

increased integration of financial markets and the advent of electronic commerce.  She also raised the important question “whether this process of monetary evolution will be intelligently directed or whether it will simply be driven by events.” The present US-China and other currency disputes seem to indicate that the latter route is being followed. She concluded her testimony by stating that “it is imperative that the United States begin to develop and put forward its own global monetary vision for the future.” She is personally in favor of a return to the gold standard. Given the fact that only 1% of economists engage in monetary economics and even less percentage that engages in research in crucial monetary standards, it is not surprising that new thinking on monetary standards is well-nigh absent. Most monetary economists focus on an alternative ways in every more complicated models to move away from the US dollar as the major reserve currency and propose a basket of currencies or a basket of commodities or other ways to bring greater predictability. If there were a real monetary standard, the global reserve system could be removed.

 

The International Institute of Monetary Transformation is proposing a carbon-based monetary standard that would make the value of currencies based upon the level of decarbonization of their societies. The lower the carbon intensity of a society, the stronger its economy and the stronger its currency. Though countries can maintain their present, culturally important, currencies, their values would change based upon the value of the Tierra, the unit of account of the monetary standard. If countries decide that with the introduction of this carbon-based, i.e. transformed international monetary system they want to introduce a world currency the Tierra would become a world currency which, besides being a unit of account, would become a means of exchange and a store of value.

 

The Tierra monetary architecture does not only have fixed exchange rates, it also has carbon accounts that are part of a nation’s balance of payments. Like financial imbalances—the bane of present day economic problems—ecological imbalances have to be settled by transferring funds from carbon-debtor nations in the global North to carbon-creditor nations in the global South.  To make the carbon-based international monetary system work a global central bank is needed that not only administers the system, monitors and regulates financial flows, but also engages in creating liquidity, particularly in those times like ours where austerity budgets in the global North and South are making life difficult or impossible. Abundance of financial resources rather than scarcity would be reigning principle. This world central bank is to be located within the UN system.

 

During the exchange rates hearings at the US Congress last week and President Obama’s meeting with Chinese premier Wen at the UN Headquarters yesterday it has become clear that this US-China dispute is being fought at the highest political level. Perhaps, this currency dispute can be seen as a transition point in a power struggle between the US and China. Congress may pass tariff barriers to Chinese goods and the Obama Administration may start legal action against China at the World Trade Organization to win a Pyrrhic victory. The Republicans may use the dispute as a political football in order to gain majorities in one or both houses of Congress, capitalizing on people’s anger and wanting to change the political landscape without developing new policies. Such strategy can be classified under the rubric “"Responsibility Deficit" a term introduced by David Brooks in his today’s column in the New York Times.

 

The US-China currency dispute is a symptom of the non-system of international monetary relations. Fighting the cause of the dispute rather than dealing with the symptom is the way forward. If the Obama Administration were to apply its New Philosophy to the international monetary system and start considering its transformation by basing it on a   carbon-based monetary standard, the dispute would be resolved and the world would become a very different place. The Institute’s Tierra Land of 2025 scenario spells out this new world together with the social processes that make this Great Monetary Transition possible. It proposes that nations pass a UN General Assembly resolution to establish the UN Commission of Experts on Monetary Transformation and Low Carbon, Climate-resilient Development that submit its Monetary Plan of Climate Action via the UN FCCC to the Rio 2012 Earth Summit where monetary global governance would become part of its global economic and environmental governance. In preparation of that Commission the IIMT has started to organize international professional working groups that are doing the research, education and action needed to have the world transition from the non-system in international monetary relations to a carbon-based international monetary system which being glue (Eichengreen 2008) would bind together  and transform the global financial, economic and commercial systems.

 

____________________________________

 

Frans C. Verhagen, M.Div., M.I.A., Ph.D. is a sustainability sociologist and founding president of International Institute of Monetary Transformation www.timun.net. His forthcoming book with Cosimo Books is entitled The Tierra Fee & Dividend System: A Monetary Approach to Combat the Climate Crisis and Advance Low Carbon and Climate-resilient Development.

 

 

Oct
01

Creator of the Tierra Fee & Dividend (TFD) global governance system

Post By gaia1 in TFD system

 

Reading the biography of ICLEI’s Secretary- General, Conrad Otto-Zimmerman, I was struck by his use of the term “creator” for several programs and institutions he started as an architect and public planning official. I think that term is also applicable to the TFD system that I developed during the last two years by dint of hard work—research, reflection, writing and subjecting myself to a large amount of being ignored and of misunderstanding. It is only now, particularly after having been invited by UNITAR to prepare a paper on the TFD for the second Yale/UNITAR conference on Global Environmental Governance (September 17-9, 2010) that people are paying attention  and some professional people support the TFD as a transformational approach to solving both the climate and economic problems in these carbon-constrained times. It is now—October 1, 2010, that I feel justified to use the above description in my signature file.